Drama at Solana: Creation of new corporate entity raises questions of ‘decentralization theater’

The shuffle is taking place at Solana Labs, one of two legal entities tied to the blockchain where around 45 employees are moving to a new entity called Anza to help further “decentralize” Solana’s ecosystem, maintain and improve the blockchain’s existing infrastructure, and develop other applications and products. “Now’s the right time for us to figure out how to build a standalone business,” Jeff Washington, an Anza cofounder and former engineer at Solana Labs, told Fortune.

According to a spokesperson, about half of Solana Labs’ existing staff of 100 have moved to Anza, named after a desert located about 60 miles from the California town of Solana Beach.

The legal reshuffling follows more than a year of scrutiny from both regulators and crypto industry onlookers, and after Solana recovers from a series of controversies that saw its SOL token plummet in value. Those include the the November 2022 bankruptcy of FTX, whose founder Sam Bankman-Fried was once one of Solana’s biggest boosters, and allegations by the Securities and Exchange Commission that SOL is an unregistered security. More recently, the cryptocurrency has seen a huge upswing on the back of a broader crypto resurgence.

When asked whether the creation of a new legal entity has anything to do with increased legal scrutiny on the blockchain over the past year, spokespeople for Solana Labs were adamant that the spinoff was part of a broader strategic plan. “This is not smoke and mirrors,” said one.

‘Just a coincidence’

Conversations surrounding Anza began in earnest since the first half of 2022, according to Jed Halfon, the former head of strategy and former general consul at Solana Labs. Now Anza’s chief strategy officer, he told Fortune that the new company was a “business opportunity to leverage the engineers that we have to start working on other major projects” and also a way to make the Solana ecosystem more “credibly neutral,” or more decentralized.

However, according to a person familiar with the matter, Halfon told employees in 2023 that the move was partly in response to the Coinbase and Binance lawsuits as well as also ongoing litigation with an investor in Solana, Mark Young, who alleged in a suit filed prior to the SEC’s that SOL was an unregistered security.

Moreover, Anza Technologies, Inc., the legal name of the entity, was established June 20 in Delaware, per incorporation filings, a little more than two weeks after the SEC argued that SOL was as an unregistered security. A Solana Labs spokesperson said the timing was “just a coincidence.”

That same person familiar with the matter, who spoke on the condition of anonymity, told Fortune that it took the Solana team more than six months after incorporation to launch Anza because Labs was wrangling with details over token vesting. As with equity vesting, employees are rewarded with SOL tokens the longer they work for the firm. All employees at Solana Labs are on a three-year vesting schedule, said the person familiar, with no tokens for the first year, a third of the tokens received at the beginning of the second year, and the last trove distributed quarterly over two years. If employees were to leave, they could potentially be leaving millions of dollars in SOL on the table. Fortune viewed a photo of the token clause in the employee contract to corroborate the source.

Halfon denied that this was a hinderance and said that the structure of token vesting at Solana Labs mirrors similar clauses at other crypto companies. “It didn’t really delay anything,” he said.

Anza’s current war chest comes from a grant from the Solana Foundation, according to Washington, the former Labs engineer and Anza cofounder. He said that the new entity is an “employee-owned, for-profit” business but declined to provide more details on its structure or the size of the grant. Halfon said that Solana cofounders Anatoly Yakovenko and Raj Gokal have no stake in the business and Solana Labs owned 13% of the firm. In addition to Washington and Halfon, Stephen Akridge, a Solana cofounder, and Amber Christensen, Labs’ former head of operations, are also moving to the new engineering outfit.

Decentralization or ‘smoke and mirrors?’

Legal experts told Fortune that Solana’s move to split off half of its employees at Labs into a new entity may be a workable strategy for showing how, currently, SOL is not a security and therefore not subject to a raft of SEC regulations.

“However, if the SEC were to bring an enforcement action involving SOL, in prosecuting its case, it would likely focus on the initial launch of token and its early years,” Philip Moustakis, a securities lawyer at Seward & Kissel who represents clients in crypto-related SEC investigations, told Fortune.

Halfon is aware of this, according to the person familiar, telling employees that potential jurors’ approximation of the situation outweighs the perceptions of securities experts, since they’re the ultimate arbiters of successful litigation. Halfon isn’t able to “comment on questions related to any internal legal discussions,” a spokesperson for Solana said in a statement.

A general counsel for the team behind a blockchain protocol, who declined to be named while talking about a competitor, told Fortune that the Solana team should be lauded for creating a legal structure that further decentralizes the management and maintenance of the network. Another lawyer for a blockchain firm, who declined to be named for the same reason, said that the formation of Anza falls into one category: “decentralization slash protecting your ass.”

Halfon pushed back and said that these lawyers aren’t briefed on the particularities of the Solana ecosystem. Moreover, he added, it’s no surprise if they do disagree, given the “regulatory uncertainty in the air in the industry.” And when asked whether he thinks Anza is actually contributing to Solana’s decentralization, he said: “I think the answer is, most certainly, yes.”